Last Year’s “Safe Havens” China And Russia Fall Out Of Favor Again

By Shuli Ren

Activities seem to be picking up in the more open emerging markets, but weakening in the larger economies such as China and Russia, readings from January PMIs show.

Here is William Jackson of Capital Economics, a London-based economics research firm, on the details:

China’s PMI edged down last month, although this may, in part at least, be due to distortions created by the New Year holiday. Meanwhile, Russia’s PMI dropped to its lowest level since June 2009.

PMIs in some of the more open EMs, such as the Czech Republic, Poland, Mexico and Taiwan have pointed to a marked strengthening of manufacturing activity in recent months. These economies appear to be benefitting from stronger demand from the US and Western Europe.

Market performance in January shows growth concerns were back in the spotlight. Not surprisingly, countries with large external deficits, such as Turkey, Brazil and South Africa, were among the worst performers. The iShares MSCI Turkey ETF (TUR) lost 12.8%, the iShares MSCI Brazil Capped ETF (EWZ) slumped 12.2%, and the iShares MSCI South Africa ETF (EZA) retreated 10.5%. The Turkish lira, the Brazilian real, and the South African rand lost 5.2%, 2.7% and 6.6% respectively.

But last year’s “safe haven” markets China and Russia, thanks to their massive foreign reserves, also slumped. The Market Vectors Russia ETF (RSX) lost 12.5% and the iShares China Large Cap ETF (FXI) lost 9.9%. Granted, a big chunk of the Russia ETF’s loss is due to the 7.2% slump in the ruble, but the Chinese yuan stayed firm. “China and Russia are again falling out of favour as focus switches back towards concerns over growth,” said John-Paul Smith, strategist at Deutsche Bank.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.